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members up to now. According to Article 3(2) of the Understanding on Rules and Procedures Governing the Settlement of Disputes, the dispute settlement system of the WTO is defined as “a central element in providing security and predictability to the multilateral trading system” and it “serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.” Conversely, investment tribunals are independent of each other, and their jurisdiction depends upon the arbitration agreement between foreign investors and host states. The treaties that investment tribunals may interpret and apply are usually bilateral treaties applicable only to a limited number of states.

Therefore, an investment tribunal would have to give an arbitration provision

“maximum possible effect” to establish its jurisdiction before it can clarify and even develop the substantive rules of investment protection.

Thus, there is no universal judicial model for distinct international dispute settlement bodies. The effectiveness and possible law-making power of each international dispute settlement body may scatter ranging from a strong point to a weak point. The status and function of a weak international dispute settlement body cannot be denied by that of a strong and active international judicial body. Borrowing the words of Judge Shahabudden, it is of course an exaggeration to suggest that investment tribunals are legislators; it is also an exaggeration to assert that they cannot create any law at all. ³⁴²

4.3 Legal techniques employed by investment treaty tribunals to achieve

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the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” Article 32 concerns supplementary means of interpretation. A delegated interpreter may have recourse to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to “confirm” the meaning resulting from the application of Article 31. Alternatively, when the interpretation according to article 31 leaves the meaning ambiguous or obscure or leads to a result which is manifestly absurd or unreasonable, supplementary means of interpretation may be taken into account to

“determine” the meaning. Accordingly, the terms and their context are the fundamental basis for treaty interpretation and the object and purpose of a treaty is also relevant in interpreting the ordinary meaning of a treaty. The preparatory work of the treaty and the circumstances of its conclusion can only be taken into account after the investigation of the ordinary meaning of a treaty under Article 31.

Although quoting and professing fidelity to the interpretation rules codified in the Vienna Convention, most investment tribunals do not strictly adhere to these rules of treaty interpretation in examining the meaning of the applicable investment treaties.

While paying lip service to the Vienna Convention rules of treaty interpretation in the abstract, tribunals often utilize these rules in a highly flexible and selective way.

Express reference of treaty interpretation rules by tribunals does not necessarily keep consistent with the reality of their analysis. The actual use of these rules of interpretation by tribunals is very likely to be inconsistent, insufficient and even flawed. ³⁴³ It can be manifested in the following situations: (1) undue emphasis on the object and purpose of a treaty; (2) doubting the authentic interpretation of treaty parties; (3) taking into account third-party treaties or instruments not applicable in the relations between the host state and the home state; (4) elevating the role of supplementary means of interpretation; (5) expansive interpretation of investors’

rights; and (6) relying upon previous awards. The first four items represent departure from the normal use of the Vienna Convention rules of treaty interpretation. And the latter two items show the utilization of interpretation methods beyond the Vienna Convention rules.

Notably, tribunals would not confine themselves to one of the above methods of treaty interpretation. In practice, various methods could be cumulatively used if needed. The very choice of any single interpretive method or of a combination or

343 Andrea Saldarriaga, Investment Awards and the Rules of Interpretation of the Vienna Convention: Making Room for Improvement, ICSID Review-Foreign Investment Law Journal, Vol. 28, No. 1, 2013, p. 204.

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accumulation of them may depend upon factors, such as considerations of justice and policy, other than the authority of interpretive methods. It has been rightly stated that rules of interpretation “are not the determining cause of judicial decision, but the form in which the judge cloaks a result arrived at by other means.”It cannot be assumed that the existence of these rules of treaty interpretation is a secure safeguard against arbitrariness or partiality. ³⁴⁴ Many commentators therefore consider that treaty interpretation is to some extent a delicate art rather than a strict or exact science. ³⁴⁵

(1) Undue emphasis on the object and purpose of a treaty

The terms and their context of a treaty are both the starting point and the ending point of treaty interpretation. Yet, the object and purpose of a treaty is also relevant in seeking the ordinary meaning to be given to the terms of the treaty in their context.

The question remains. From where can an interpreter derive the object and purpose?

How important are the object and purpose in interpreting a treaty? In practice, these questions are subject to the discretion of a delegated interpreter. This elasticity, however, has the danger of enabling interpreters to push textual boundaries by using teleological or purposive approaches. As Sinclair rightly pointed out, the placing of undue emphasis on the “object and purpose” of a treaty will encourage teleological methods of interpretation which, in some of its more extreme forms, will even deny the relevance of the intentions of the parties. ³⁴⁶

Certainly, the finding and ascertainment of the object and purpose of treaties is by no means a mechanical operation. The teleological interpretation is a value-based interpretation having the potential of overriding the explicit language of the applicable treaty. ³⁴⁷ In the field of international investment treaties, the emphasis on the object and purpose of an investment treaty often leads to an interpretation that is favorable to investors. ³⁴⁸ Investment tribunals have frequently found the object and purpose of investment treaties by looking at their titles and preambles. Sometimes, tribunals even were of the opinion that the object and purpose were evident without indicating where

344 Hersh Lauterpacht, Restrictive Interpretation and the Principle of Effectiveness in the Interpretation of Treaties, British Yearbook of International Law, Vol. 26, 1949, p. 53.

345 See, e.g., International Law Commission, Draft Articles on the Law of Treaties with Commentaries, Yearbook of International Law Commission, 1966, Vol. II, p. 218; Anthony Aust, Modern Treaty Law and Practice, Cambridge University Press, 2000, p. 184.

346 Ian Sinclair, The Vienna Convention on the Law of Treaties, Manchester University Press, 1984, p. 130.

347 Joost Pauwelyn & Manfred Elsig, The Politics of Treaty Interpretation: Variations and Explanations Across International Tribunals, in Jeffery Dunoff & Mark Pollack (eds.), Interdisciplinary Perspectives on International Law and International Relations, Cambridge University Press, 2013, pp. 450-452.

348 Christoph Schreuer, Diversity and Harmonization of Treaty Interpretation in Investment Arbitration, in Malgosia Fitzmaurice, Olufemi Elias & Panos Merkouris(eds.), Treaty Interpretation and the Vienna Convention on the Law of Treaties: 30 Years on, Martinus Nijhoff Publishers, 2010, p. 131.

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they derived the object and purpose. The promotion and protection of foreign investment have usually been considered to be the only object and purpose of investment treaties in spite of the fact that most investment treaties do not specify their objectives.

The purpose of the promotion and protection of investment has been extensively applied in interpreting both the investor-state arbitration provisions and the substantive investment treatment provisions. For instance, with regard to the scope of covered “investment” and covered “investors”, the Tokios tribunal found that the object and purpose of the Ukraine-Lithuania BIT is to provide broad protection of investors and their investments. In the view of the tribunal, the Respondent’s request to restrict the scope of covered investors through a control-test would be inconsistent with the object and purpose of the Ukraine-Lithuania BIT, which is to provide broad protection of investors and their investments. ³⁴⁹ Equally, in determining whether preconditions to arbitration are mandatory in nature, whether MFN clauses apply to dispute settlement matters and whether umbrella clauses can elevate contract claims into treaty claims, most tribunals have reached an interpretation in favor of investors on the ground that it would otherwise be contrary with the purpose of investment protection. ³⁵⁰ Besides, the emphasis on investor protection also leads tribunals to adopt an expansive reading of standards of investment treatment, such as the standard of fair and equitable treatment. ³⁵¹

It follows that fulfilling and strengthening the purpose of investment protection is the underlying starting point of most tribunals in interpreting investment treaties. As a matter of fact, the promotion and protection of investments is not the sole “object and purpose” of investment treaties, the importance of stimulating the flow of private capital and the economic development or prosperity of the host state is also mentioned in the preamble of most investment treaties. Therefore, investment treaties not only aim to protect investment, but also seek to promote the economic development or prosperity of the host state in the sense of teleology or treaty purpose. Investment treaties strike a balance between the promotion and protection of investment on the one hand and the respect of host states’ right to regulate foreign investment in the public interest on the other. This calls for a balanced approach to the interpretation of

349 Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, para. 31.

350 See supra chapters 3.4, 3.5, and 3.6.

351 UNCTAD, Fair and Equitable Treatment: A Sequel, UNCTAD Series on Issues in International Investment Agreements II, United Nations publication, 2012, p. 11.

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investment treaties. Overemphasis on any aspect would break the balance of overall balance of rights and obligations in international investment between foreign investors and the host countries. Nevertheless, reference is usually made by tribunals to the purpose of investment protection but not to the promotion of the economic development of the host state.³⁵²

(2) Doubting the authentic interpretation of treaty parties

In accordance with paragraphs 3(a) and 3(b) of Article 31 in the Vienna Convention, together with the context, “any subsequent agreement” between the parties regarding the interpretation of the treaty or the application of its provisions and “any subsequent practice” in the application of the treaty which establishes the agreement of the parties regarding its interpretation shall be taken into account. Therefore, the parties’

authentic interpretation of the treaty terms, in the form of either a subsequent agreement or a subsequent practice, demonstrates the common understanding of the treaty parties as to the meaning of the terms and ought to have binding force on the interpreters. ³⁵³ An agreement as to the interpretation of a provision reached after the conclusion of the treaty represents an authentic interpretation by the parties which must be read into the treaty for purposes of its interpretation. ³⁵⁴ A subsequent agreement or practice can only be invoked if they indeed establish the agreement of all the parties regarding the interpretation of the treaty. Any agreement or practice, regardless of its legal form, establishing the consent of all the parties as to the interpretation of the treaty is to be considered as authoritative. Nevertheless, unilateral interpretative declaration of one treaty party cannot be deemed to be a subsequent agreement or a subsequent practice since one treaty party cannot unilaterally give authentic interpretation.

Yet in arbitral practice, investment tribunals have rarely taken into account subsequent agreements or subsequent practice between the parties regarding the interpretation of the investment treaty. The binding force of the authentic interpretation of all the treaty parties has been questioned and suppressed by tribunals.

It was argued that the subsequent interpretation of treaty parties was self-interested and could improperly narrow the rights of foreign investors already created by

352 Omar Garcia-Bolivar, Teleology of International Investment Law: The Role of Purpose in the Interpretation of International Investment Agreements, Journal of World Investment &Trade, Vol. 6, 2005, pp. 751-772.

353 Richard K. Gardiner, Treaty Interpretation, Oxford University Press, 2008, p. 32; Mark E. Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties, Martinus Nijhoff Publishers, 2009, p.

429.

354 International Law Commission, Draft Articles on the Law of Treaties with Commentaries, Yearbook of International Law Commission, 1966, Vol. II, pp. 221-222.

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investment treaties. State interpretations might thus amount to unlawful and impermissible attempt to amend the treaty in the view of tribunals. ³⁵⁵ Therefore, interpretations to the treaty, which clarify the meaning of the treaty, could be identified by tribunals as amendments to the treaty, which change that meaning. The drawing of a strict distinction between interpretations and amendments is of great significance since interpretations presumptively have both prospective and retrospective effect but amendments would presumptively have only prospective effect. ³⁵⁶

A typical example of authentic interpretation of treaty parties in the field of investment treaties is the NAFTA Free Trade Commission’s Note of Interpretation.

The Free Trade Commission is established by the parties to the NAFTA, namely America, Canada and Mexico. The Free Trade Commission is empowered to supervise the implementation of the NAFTA and to resolve disputes that may arise regarding its interpretation or application according to Article 2001 of the NAFTA.

Article 1131(2) of the NAFTA further stipulates that an interpretation by the Free Trade Commission of a provision of the NAFTA shall be binding on a Tribunal.

Therefore, the interpretation issued by the Free Trade Commission is certainly a subsequent agreement in the sense of paragraphs 3(a) of Article 31 in the Vienna Convention. On 31 July 2001, the Free Trade Commission issued an interpretation clarifying that fair and equitable treatment provided for in Article 1105 of the NAFTA does not require treatment above and beyond the minimum standard of treatment under customary international law. Despite this, in the case of Pope & Talbot v.

Canada, the tribunal held that the interpretation put forward by the Free Trade Commission of NAFTA was in fact an amendment rather than an interpretation on the basis that the interpretation was an illegitimate attempt to amend the treaty retroactively in order to interfere with an ongoing case. ³⁵⁷ This argument denied the binding force of the authentic interpretation of treaty parties by characterizing it as amendment rather than interpretation.

(3) Taking into account third-party treaties or instruments not applicable in the relations between the host state and the home state

355 Charles H. Brower II, Why the FTC Notes of Interpretation Constitute a Partial Amendment of NAFTA Article 1105, Virginia Journal of International Law, Vol. 46, 2006, pp. 347-364.

356 Anthea Roberts, Power and Persuasion in Investment Treaty Interpretation: The Dual Role of States, American Journal of International Law, Vol. 104, No. 2, 2010, p. 201.

357 Pope & Talbot Inc. v. Government of Canada, UNCITRAL Case, Award in Respect of Damages, 31 May 2002, para. 47.

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Paragraph 3(c) of Article 31 in the Vienna Convention adds a third element to be taken into account together with the context: any relevant rules of international law applicable in the relations between the parties. Limitations are placed on the scope of rules to be taken into account. The rules must be those that are “relevant” and

“applicable in the relations between the parties”. In interpreting a treaty, an interpreter may only take into account any “relevant rules” of international law beyond the treaty context, whether conventional or customary, which are “applicable in the relations between the parties”. Therefore, third-party treaties which are not applicable in the relations between the parties cannot be taken into account in interpreting a treaty between the parties.

An investment treaty between State A and State B is to be interpreted independently from other treaties, such as treaties between State B and State C or treaties between State C and State D. The same or similar wordings may have different meanings in different treaty relationships depending on the respective context. As a matter of practice, however, investment tribunals have often taken into account third-party treaties or instruments in interpreting an investment treaty between the host state and the home state. The similarities and differences in the treaties offer infinite possibilities for tribunals to try and draw conclusions as they wish.

The use of third-party investment treaties of the states involved in an investment dispute has been frequently employed by investment tribunals in interpreting an investment treaty between the states. For instance, in Aguas del Tunari v. Bolivia, the applicable investment treaty was the Netherlands-Bolivia BIT. While admitting that

“the BIT practice of the Netherlands and Bolivia is necessarily of limited probative value to the task of interpreting the BIT between the Netherlands and Bolivia”, the tribunal nevertheless held that “the practice of a State as regards to the negotiation of BITs may be helpful, however, in testing the assertions of Parties as to the general policies of either Bolivia or the Netherlands concerning BITs, and in testing assumptions a tribunal may make regarding BITs.” ³⁵⁸ The general BIT practice of the Netherlands and Bolivia were thus examined, such as the Netherlands-Argentina BIT and the Bolivia-Argentina BIT. The purpose of making reference to the BIT practice of the home state or the host state lies in clarifying the intentions of the home state and of the host state to a specific BIT.

Other than the reference to investment treaties of the home state or the host state,

358 Aguas del Tunari S.A. v. Republic of Bolivia, ICSID Case No. ARB 2 3, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005, paras. 291-293.

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the use of wholly unrelated third-party investment treaties is also regularly relied upon in interpreting the applicable investment treaty between the home state and the host state in issue. In Maffezini v. Spain, the tribunal firstly made reference to the BIT practice of the host state Spain, such as the Chile-Spain BIT, and concluded that Spain’s preferred practice was to allow for arbitration following a six-months effort to reach a friendly settlement. In addition, the tribunal also took into account wholly unrelated third-party investment treaties, such as the BIT practice of the United Kingdom, in interpreting the MFN clause in the applicable Argentina-Spain BIT. The tribunal noted that a number of investment treaties concluded by the United Kingdom expressly stipulated that MFN clauses applied to dispute settlement. Despite the fact that the Argentina-Spain BIT did not explicitly allow the application of the MFN clause to dispute settlement, the tribunal however reached a positive answer after the reference to third-party investment treaties allowing the application of MFN clauses to dispute settlement. ³⁵⁹ Likewise, in Enron v. Argentina, the tribunal clearly asserted that “the interpretation of a bilateral treaty between two parties in connection with the text of another treaty between different parties will normally be the same, unless the parties express a different intention in accordance with international law.”³⁶⁰ Sometimes, tribunals invoked a wholly unrelated third-party treaty in order to make an argumentum e contrario. In Tokios v. Ukraine case, in order to justify its conclusion that a foreign company controlled by nationals of the host state could be characterized as foreign investors under the Lithuania-Ukraine BIT, the tribunal compared the Lithuania-Ukraine BIT with two third-party treaties, the US-Argentina BIT and the Energy Charter Treaty. These two third-party treatiesexplicitly excluded entities controlled by nationals of the host state from the scope of covered investors, while the Lithuania-Ukraine BITcontained no such explicit exclusion provision. The tribunal therefore confirmed the investor status of the claimant under the Lithuania-Ukraine BIT.³⁶¹

Apart from third party treaties, instruments not in force may also be referred to by tribunals as an interpretive material. Model investment treaties of the host state or the home state or even a third state could be used in interpretation even though they have

359 Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Objections to Jurisdiction, 25 January 2000, paras. 52-61.

360 Enron Creditors Recovery Corp. (formerly Enron Corp.) and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004, para. 47.

361 Tokios Tokeles v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, paras.

34-36.